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Market Snapshot: U.S. stocks head for longest losing streak in a month as rate-hike fears, weak bank earnings bite

U.S. stock index futures fell Thursday as the prospect of another large interest rate rise by the Federal Reserve and weaker-than-expected bank earnings conspired to drive equities lower.

How are stock-index futures trading

S&P 500 futures
ES00,
-1.33%

fell 53 points, or 1.4%, to 3,751.

Dow Jones Industrial Average
YM00,
-1.60%

futures fell 466 points, or 1.5%, to 30,295.

Nasdaq 100 futures
NQ00,
-0.91%

dropped 124 points, or 1.1%, to 11,638.

On Wednesday, the Dow
DJIA,
-1.63%

fell 209 points, or 0.7%, while the S&P 500
SPX,
-1.45%

declined 0.5% and the Nasdaq Composite
COMP,
-1.18%

dropped 0.2%.

What’s driving markets

Federal Reserve rate hike worries continued to reverberate Thursday as traders priced in a 75% probability that Chairman Jay Powell and colleagues would raise the Fed’s benchmark interest rate by 100 basis points in less than two weeks time as they try to crush inflation, which jumped above 9% to a 41-year high in June.

The U.S. dollar
DXY,
+0.82%

is firmer and stock futures are under pressure as investors fret that higher borrowing costs will slow the economy and crimp corporate profits.

To that end, attention turns to the second-quarter earnings reporting season, which began in earnest on Thursday, with results from the big U.S. banks, JPMorgan Chase
JPM,
-4.62%

and Morgan Stanley
MS,
-1.89%
.

Analysts didn’t expect the results to show signs of customer stress, but the market remains wary of the sector given the pessimistic economic outlook for later in the year.

“While [bank] stocks appear discounted at 8 to 9x 2023 P/E vs. 11 to 13x historical average, investors [are] worried about downside risks to 2023 EPS from slower growth, higher credit costs and declining margins,” said strategists at BoA Securities.

“Absent a macro shift (inflation outlook, Ukraine war) we don’t expect results to change the cautious investor attitude towards the group,” they added.

Indeed, JPMorgan’s figures were not well-received, the shares falling more than 3% in pre-market trading on Thursday.

Meanwhile, Morgan Stanley shares were down 0.5% after falling short of consensus expectations on earnings and revenue.

For the wider market, observers estimate a Q2 earnings growth rate of 4.3%, which would be the lowest for the S&P 500 index companies since the fourth quarter of 2020, according to John Butters, senior earnings analyst at FactSet.

However, given the market’s recent retreat —the S&P 500 has lost 20.2% so far in 2022 — any such advance in corporate profits would leave stocks relatively fairly valued.

“The forward 12-month P/E ratio for the S&P 500 is 16.3. This P/E ratio is below the 5-year average (18.6) and below the 10-year average (17.0),” Butters added.

On the economic data front, investors got another look at inflation on Thursday as the producer price index climbed 1.1% in June, bringing the headline rate for the past 12 months to a new cycle high of 11.3%, which is near the highest level on record for the gauge of wholesale prices, which are eventually passed down to consumers.

There was a silver lining, however: If food and gas and trade margins are omitted, so-called core producer prices rose just 0.3% in June. This caused the annualized rate to slow to 6.4% in June, down from 6.7% during the prior month.

In other data, weekly jobless claims showed more Americans applying for benefits than at any time since November 2021.

Other markets

Wall Street’s choppy session overnight left most Asian and European bourses displaying little risk appetite. The Stoxx 600
SXXP,
-1.38%

in Europe lost 0.5% and Hong Kong’s Hang Seng
HSI,
-0.22%

fell 0.5%. The Nikkei 225
NIK,
+0.62%

in Japan bucked the trend and managed a 0.6% gain.

The 10-year Treasury yield
TMUBMUSD10Y,
3.008%

was up 4.4 basis points to 2.982% after falling for the past three sessions.

The dollar index
DXY,
+0.82%

rose 0.5% to 108.53, flirting near 20-year highs on expectations for more Fed rate hikes. This put pressure on dollar-denominated commodities, with WTI crude
CL.1,
-3.87%

off 1.2% to $95.16 a barrel.

Bitcoin
BTCUSD,
+0.29%

is up 1.6% to $19978, recovering some ground after crypto lender Celsius filed for bankruptcy.

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